This is the sixth and final day of our series Put a Bow on Your Holiday Budget: 6 Days of Advice.
From time to time, credit card bills show up with what looks like a personal check. This is typically a balance-transfer check, which is intended to help you pay off a balance with another creditor who charges you a higher interest rate.
The holiday season is a good time of year for creditors to tempt customers, even service members and veterans, with balance-transfer checks. There are pros and cons to these fiscal tools.
Here are five key things to know about balance-transfer checks:
Using a balance-transfer checks essentially means you use one creditor to pay off another. As a result, you consolidate your debt with the creditor who cut the check.
Interest rates on the balance transfer can be independent of other interest rates. This way if you go ahead with a balance transfer, the interest rate for the amount transferred won’t change unless you miss a payment. Then it will skyrocket. But if you have a credit card with a high interest rate, you’ll likely get a lower rate on the transfer, which would save you money.
Before an introductory annual percentage rate (APR) expires on a card, you could transfer the balance to a different card. Consumers do so because they know they won’t be able to pay the balance once the APR increases. Since balance-transfer checks usually feature low interest rates, the transfer could act like an extension of the introductory rate.
Be sure that the balance-transfer check boasts a low interest rate. A common rate is 3.99 percent, but might be a few points higher. Be certain you’ll get a low rate before using the check.
It’s likely that a balance-transfer check comes with transfer fees, calculated as a percentage of the transfer amount with minimum and maximum amounts. Call the creditor to ask them to waive the fees. It’s always worth a shot.
For consolidating credit into one balance at a low interest rate, balance-transfer checks can be useful. But if your balances are low or you only have a few outstanding debts, then you’re probably better off paying down your debt without a balance transfer.
Photo thanks to cogdogblog under a Creative Commons license on Flickr.